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Chapter 9: Question 1E (page 476)

The inventory of Oheto Company on December 31, 2017, consists of the following items. Part Quantity Cost per Unit Net Realizable Value 110 600 \( 95 \)100 111 1,000 60 52 112 500 80 76 113 200 170 180 120 400 205 208 121a 1,600 16 1 122 300 240 235 a Part No. 121 is obsolete and has a realizable value of $1 each as scrap. Instructions 1. Determine the inventory as of December 31, 2017, by the LCNRV method, applying this method to each item. 2. Determine the inventory by the LCNRV method, applying the method to the total of the inventory.

Short Answer

Expert verified

(a) Value of inventory is $335,100.

(b) Value of inventory is $341,300.

Step by step solution

01

Schedule for LCNRV

Part No.

Quantity

Cost

Net realizable value

Total Cost

Total net realizable value

LCNRV

110

600

$95

$100

$57,000

$60,000

$57,000

111

1,000

60

52

60,000

52,000

52,000

112

500

80

76

40,000

38,000

38,000

113

200

170

180

34,000

36,000

34,000

120

400

205

208

82,000

83,200

82,000

121

1,600

16

1

25,600

1,600

1,600

122

300

240

235

72,000

70,500

70500

Totals

$370.600

$341,300

$335,100

02

Inventory value by each item basis

(a) The value of inventory as of December 31, 2017, per LCNRV applied to each item equals $335,100.

03

Inventory value by the total inventory basis

(b) The total cost of the inventory equals $370,600, and the total net realizable value equals $341,300. Hence, per the LCNRV method, the value of inventory equals $341,300 as it is the lowest between the two.

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Most popular questions from this chapter

Question:The conventional retail inventory method yields results that are essentially the same as those yielded by the lower-of-cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.

Question:Where there is evidence that the utility of inventory goods, as part of their disposal in the ordinary course of business, will be less than cost, what is the proper accounting treatment?

Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2017. Jim Alcide, controller for Garcia, has gathered the following data concerning inventory. At May 31, 2017, the balance in Garcia鈥檚 Raw Materials Inventory account was \(408,000, and Allowance to Reduce Inventory to NRV had a credit balance of \)27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2017, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia鈥檚 May 31, 2017, financial statements for inventory under the LCNRV rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Net Realizable Cost Sales Price Value Aluminum siding \( 70,000 \) 64,000 \( 56,000 Cedar shake siding 86,000 94,000 84,800 Louvered glass doors 112,000 186,400 168,300 Thermal windows 140,000 154,800 140,000 Total \)408,000 \(499,200 \)449,100 Instructions (a) Determine the proper balance in Allowance to Reduce Inventory to NRV at May 31, 2017. (b) For the fiscal year ended May 31, 2017, determine the amount of the gain or loss that would be recorded (using the loss method) due to the change in Allowance to Reduce Inventory to NRV. (c) Explain the rationale for the use of the LCNRV rule as it applies to inventories

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Presented below is information related to Aaron Rodgers Corporation for the current year. Beginning inventory \( 600,000 Purchases 1,500,000 Total goods available for sale \)2,100,000 Sales revenue 2,500,000 Instructions Compute the ending inventory, assuming that (a) gross profit is 45% of sales, (b) gross profit is 60% of cost, (c) gross profit is 35% of sales, and (d) gross profit is 25% of cost.
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